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Following the announcement made by the Minister of Finance during the budget speech in October 2015, a legal notice (L.N. 162 of 2018) was finally published to introduce VAT Grouping. However, this new concept is not being made available to all groups which may exist for other purposes, such as the Income Tax Act.

VAT Grouping is quite common in other EU Member States however, it appears that Malta is reluctant to introduce this concept across the board and therefore the new regulations are only applicable to groups wherein at least one member is a licensed or regulated entity within the gaming sector or the financial services industry such as banks, financial institutions, insurance, investment services, securitisation etc, the services of which are usually exempt without credit.

To form a VAT Group, the following conditions must be satisfied:

All members of the VAT Group are legal persons established in Malta

At least one of the members of the VAT Group is a taxable person licenced or regulated under any of the following Acts:

The Banking Act

The Financial Institutions Act

The Gaming Act

The Insurance Business Act

The Insurance Intermediaries Act

The Investment Services Act

The Lotteries and Other Games Act

The Retirement Pensions Act

The Securitisation Act

Members of the VAT Group are financially, organisationally and economically linked to each other. A financial link exists when two or more entities are directly or indirectly held by at least 90% by the same person or persons. The financial link may be established on the basis of voting rights, profit entitlement or access to winding up distributions. An organisational link exists when two or more entities share their management structure whilst an economic link exists when entities are linked to each other by virtue of the industry they operate in, or provide services which are interdependent or complementary to each other. An economic link also exists when group members carry out activities which are wholly or substantially carried out for the benefit of the other Group Members

All Members of the VAT Group are up to date with their VAT filing requirements and VAT payments

Taxand's Take

Through the introduction of VAT Grouping provisions, separate legal entities may now operate as a single taxable person thus reducing the administrative burden on the various group companies as well as reducing cash flow issues associated with the payment and recovery of VAT. It is a pity that the group definition for VAT grouping is very restrictive and not all groups may benefit from such provisions.